Housing Bulletin - Should Home Sales Help Fund Mass Transit?

Published June 20, 2007

With Illinois’ General Assembly at an impasse over a new budget, it’s desperation time for funding mass transit. Now a key state legislator has proposed a transit finance plan that includes a steep increase in the tax paid by Chicagoans selling real estate. The increase would tack on an additional $3 tax (per $1,000 in the sale price) to the current transfer charge ($7.50 per $1,000). For a home sold at the Chicago median price of $267,000, the transfer tax would go up from $2,002.50 to $2,803.50. (In addition, Chicagoans would continue to pay a $1.50 per $1,000 transfer charge to Cook County, an amount that will not change under the proposed legislation.)

The Chicago Association of Realtors is aggressively fighting the proposal. “You want to tell people in this market that it’s not $7.50 anymore?” asks Brian Bernardoni, the association’s legislative director. “Now? Has anyone taken a look at what’s happening in the real-estate market in Chicago?”

But Illinois state representative Julie Hamos, an Evanston Democrat and the chair of the General Assembly’s Mass Transit Committee, defends her proposal as a reasonable, strategic part of a $300-million transit-funding package. “There’s no good tax to raise,” says Hamos, “but there is an easy logic behind using the transfer tax.”

The crucial problem is that the Regional Transportation Authority (RTA) is organized into three regions-Chicago, suburban Cook County, and the collar counties-and each region must provide approximately the same amount of funding. “Sales tax has been the funding base for transit for 24 years, so we went with raising the sales tax,” Hamos explains. But in projections, the two suburban regions pulled in about $200 million between them, while Chicago raised only about $60 million.

Bringing Chicago up to the partnership level via another $40 million in increased property transfer taxes is “completely defensible,” Hamos says. “A quality transit system is a selling point for Chicago, for businesses, and for residents. It increases the value of your property, and conversely, if we let the transit system fall apart, it will decrease values.”

Bernardoni doesn’t entirely dismiss Hamos’s logic. “I buy into the whole argument that transit is important for economic development,” he says. “My problem is that they’ve attached themselves to the wrong tax. Chicago already has one of the highest transfer taxes in the country. This will put it over the top.”

Hamos says that, without a realistic option from the governor, there is no alternative to the increased transfer tax-a point she made with House speaker Michael Madigan a few days ago. She also notes that her intent is to provide a long-term overhaul of RTA operations and funding, not merely a temporary bailout. “We need this funding to be fair and balanced throughout the regions,” she says.

What do you think? Should Chicago’s share of the funding come from a higher tax on real-estate sales?